Pension Plan Options
There are two basic types of pension plans in Canada. The first is a defined contribution plan and the second is a defined benefit plan. It is very important to understand which plan you have, how the funds in the plan are invested and what your retirement options are.
Defined Contribution Plan
Every month you or you and your employer contribute a percentage of your salary to the plan where it is invested by you or the plan administrators. When you retire or leave the employer, you may be able to transfer your accumulated pension to a Locked in Retirement Account (LIRA). The money cannot be withdrawn and must ultimately be used to purchase an annuity or transferred to a prescribed Registered Retirement Income Fund. You have control over how the funds in the plan are invested and you may start withdrawals as early as age 50 or 55. There is no maximum limit on prescribed RRIF withdrawals.
Defined Contribution Plan
With this type of plan, a formula is used to determine the amount of monthly pension received at retirement. It could be a specified number of dollars for each year of service, a percentage of the employees career earnings or it could be based on the employees length of service and average earnings.
Many factors will affect which pension option you choose or are allowed to choose and how you invest your money. It is important to consult a qualified investment professional to help you evaluate your personal situation.
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